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SBI plans mega issues to raise Rs 40 bn - Views on News from Equitymaster
 
 
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  • Nov 20, 1999

    SBI plans mega issues to raise Rs 40 bn

    The State Bank of India (SBI) is planning to launch a domestic and an overseas issue simultaneously next year to mobilise between Rs 30 to Rs 40 bn. The move is aimed at shoring up the bank's capital adequacy ratio.

    SBI (FY99 total income: Rs 19.11 bn) is India's largest bank. It runs the world's largest network of 8,900 branches and controls about 22% of India's loans and deposits.

    One critical factor will be the dilution of the Reserve Bank of India' s holding to 40% (currently 59.74%), if it were not to subscribe to its rights entitlement. This assumes importance in view of the statement by the SBI chairman in which he has stated that the bank is likely to go private by year 2000.

    The inflow of funds from these issues will ensure that the Bank has adequate capital to pursue aggressive growth opportunities. Moreover, a possible listing on the American bourses would provide it with an avenue to raise fresh funds in the future.

    The bank however needs to take corrective measures to alleviate the level of non-performing assets (in excess of 14% in gross terms). Unless this problem is solved, the additional capital raised will continue to be sub optimally utilised, as a part will have to be allocated to meet the provisioning requirements.

    Market View:
    Analysts have rated the stock as a 'BUY' on account of the turnaround in the Indian economy, which will lead to an increase in credit growth and the demand for other banking services.

     

     

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